The Intended and Unintended Consequences of Privacy Regulation for Consumer Marketing

Abstract

As businesses increasingly rely on granular consumer data, the public has increasingly pushed for enhanced regulation to protect consumers’ privacy. We provide a perspective based on the academic marketing literature that evaluates the various benefits and costs of existing and pending government regulations and corporate privacy policies. We make four key points. First, data-based personalized marketing is not automatically harmful. Second, consumers have heterogeneous privacy preferences, and privacy policies may unintentionally favor the preferences of the rich. Third, privacy regulations may stifle innovation by entrepreneurs who are more likely to cater to underserved, niche consumer segments. Fourth, privacy measures may favor large companies who have less need for third-party data and can afford compliance costs. We also discuss technology platforms’ recent proposals for privacy solutions that mitigate some of these harms, but, again, in a way that might disadvantage small firms and entrepreneurs.

Keywords: Privacy, consumer protection, discrimination, digital exclusion, competition, regulation

JEL Classification: K2, M3